The E.N.D. partnership has the following capital balances as of the end of the c
ID: 2568433 • Letter: T
Question
The E.N.D. partnership has the following capital balances as of the end of the current year:
Answer each of the following independent questions:
Assume that the partners share profits and losses 3:3:2:2, respectively. Fergie retires and is paid $151,000 based on the terms of the original partnership agreement. If the goodwill method is used, what is the capital balance of the remaining three partners?
Assume that the partners share profits and losses 4:3:2:1, respectively. Pineda retires and is paid $305,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital balance of the remaining three partners? (Do not round your intermediate calculations. Round your final answers to the nearest dollar amounts.)
Pineda $ 160,000 Adams 140,000 Fergie 130,000 Gomez 120,000 Total capital $ 550,000Explanation / Answer
(a) Fergie is paid $21000 additional amount over her capital balance of $130000. Her share is 20% (out of 3:3:2:2) which means there exists a Goodwill valuing $105000 ($21000 ÷ 20%). Remaining goodwill be will allocated in remaining partners and then we can arrive at new Capital balances as follows:
Pineda = $160000 + 30% of $105000 = $160000 + $31500 = $191500
Adams = $140000 + 30% of $105000 = $140000 + $31500 = $171500
Gomez = $120000 + 20% of $105000 = $120000 + $21000 = $141000
(b) Pineda is paid $145000 additional amount over her capital balance of $160000. This will be allocated and reduced from remaining partners capital balances basis new partnership ratio's which will be 3/7:2/7:2/7
Adams = $140000 - ($145000 * 3/7) = $140000 - $62143 = $77857
Fergie = $130000 - ($145000 * 2/7) = $130000 - $41429 = $88571
Gomez = $120000 - ($145000 * 2/7) = $120000 - $41429 = $78571
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